The decision of Circle to follow US government sanctions and blacklist Ethereum-based users of Tornado Cash sets a dangerous precedent for the entire cryptocurrency industry.
That is the view of Marius Ciubotariu, co-founder of Hubble Protocol, and Stefan Rust, CEO of Laguna.
The US Treasury Department has imposed sanctions on Tornado Cash, a cryptocurrency ‘mixer’ which says it protects users’ privacy.
It is alleged that Tornado Cash has helped launder more than $7 billion in stolen crypto funds since its inception in 2019. USDC and ETH addresses connected to Tornado Cash have been sanctioned, while links to its GitHub account and website have been taken down and its email disabled.
Circle, the issuer of the USDC stablecoin – which is pegged 1-to-1 to the US dollar – followed this by freezing more than $75,000 worth of funds linked to the 44 Tornado Cash addresses sanctioned by authorities.
“Circle’s decision to follow along with the US Treasury and ban users of Tornado from buying or selling USDC tokens is an extremely worrying development that threatens the integrity of cryptocurrency, and decentralised finance in particular,” said Ciubotariu, whose business is a financial platform for decentralised finance services on the Solana blockchain.
“An estimated $437 million of assets have been blocked as a result of this decision, one that will surely impact all manner of users of the cryptocurrency mixing service. More importantly, though, it underlines how dangerous it is to have one centralised company managing over $54 billion of assets in crypto.”
Citing the collapsed Terra-issued UST stablecoin, he continued: “The UST fallout has made clear how important it is to have real asset-backed stablecoins. However, real asset-backed stablecoins that are subject to the whim of draconian US sanctions do not, arguably, provide the type of security that holders of the USDC token would like.
“The precedent that this could set for the future of Ethereum Virtual Machine (EVM) smart contracts is also alarming. In the future, we could see these contracts written with an opt-in clause that would allow node validators to decide not to process a transaction due to a black/watchlist. Essentially, this puts validators in a position where they act as a proxy for regulators.
“As a project, cryptocurrency is designed to be a departure from the negative aspects of traditional finance, which frequently restricts access based on sweeping policies that often don’t serve the majority of people using it.
“By giving power to regulators, we are stifling cryptocurrencies’ emerging ability to sanction bad actors internally by catching hackers and criminals as they move around, attacking them back, or reporting them to the authorities.”
Rust, CEO of the Laguna blockchain – aiming to create a DeFi ecosystem – agrees that the move by Circle is an “extremely dangerous precedent and should be a wake-up call for everybody working in the cryptocurrency industry”.
He explained: “While much is being said of Tornado’s links to the North Korean state-backed hacking group Lazarus, the likelihood that North Korean users make up anything more than a tiny fraction of a percent of Tornado’s users is small.
“In reality, USDC is reacting directly to the wishes of the US Treasury Department… this has effectively made Tornado Cash illegal in the US.
“The fact that blacklist capability can be (and is) written into Ethereum Virtual Machine (EVM) token contracts is a huge vulnerability and point of coercion for the state. On the Bitcoin network, individual nodes can blacklist a Bitcoin address, but they risk forking themselves off of the network if they don’t have the 51% of hash power to enforce it.
“With an Ethereum smart contract, tokens in a blacklisted address simply cannot ever be moved because the contract will fail if a transfer from that address is attempted. Right now, any user that has sent funds to a newly-banned Tornado smart contract finds themselves locked out of their USDC forever.
“People warned about the consequences of this feature being added to the USDC contract from day one. Now we have a centralised company at the mercy of US regulation running the fourth largest cryptocurrency in the world – and over $55 billion of market cap is on the line.
“This is truly a scary move. Imagine having a business where your closest competitor could shut you down by adding one row to a database it has complete control over?”
Coinbase Q2 losses hit $1.1bn amid crypto winter
Losses at Coinbase hit an astonishing $1.1 billion in the second quarter of 2022.
The cryptocurrency exchange, listed on the NASDAQ in New York since April 2021, blamed the “fast and furious” fall of the market for the performance.
It said the figure was mainly driven by $446 million in non-cash impairment charges caused by lower crypto asset prices in Q2.
However revenue dropped a huge 153% compared with the same period in 2021 to $802.6m, also down 45% compared with Q1, while trading volume fell 30% and transaction revenue was down 35% year-on-year.
The results, which missed analyst expectations, follow $430m of losses in Q1. The company’s share price fell almost 11% on Tuesday following the announcement and currently stands below $88.
The share price stood at almost $350 in November, prior to the crypto crash, and fell below $50 briefly at the end of June and early July.
“The current downturn came fast and furious, and we are seeing customer behaviour mirror that of past down markets,” Coinbase, which cut 18% of its workforce in June, stated.
CEO Brian Armstrong even went as far as to describe the bear market as “a breath of fresh air”, saying it allowed the company to focus on areas of business away from onboarding new users.
On an earnings call he also said public investors may not be familiar with the cyclical nature of the crypto industry and added: “the more regulation there is for crypto, the better it is for Coinbase”.
Cryptocurrency shorts
Exchange FTX has partnered with Reddit to offer crypto-enabled perks for Reddit Community Points, which were introduced in 2020 as a measure of reputation in communities or subreddits – allowing users to own a piece of them.
German startup crypto bank Nuri has filed for insolvency. It said its 500,000 customers will be able to withdraw assets from the platform.
Hackers have stolen around $570,000 from decentralised finance protocol Curve.Finance.
Crypto app Luno has appointed Thomas Tudehope, a former head of public affairs at Revolut and senior advisor to Australian Prime Minister Malcolm Turnbull, as its global head of public policy.
Iran, the most sanctioned country in the world before Russia’s invasion of Ukraine, has imported goods using $10m of cryptocurrency. A senior government trade official said it plans to ramp up its use of crypto to import goods: “By the end of September, the use of cryptocurrencies and smart contracts will be widely used in foreign trade with target countries.”
RISC Zero, a startup using zero-knowledge technology to create a scalable blockchain, has raised $12 million in a seed round led by Bain Capital Crypto. Other participants in the round included Geometry, D1 Ventures and Cota Capital.
Crypto prices
The overall market cap of the more than 20,500 coins is at $1.08 trillion at the time of writing (7am UK), a 3.7% decrease in the last 24 hours.
Market leader Bitcoin – the original cryptocurrency created by the mysterious Satoshi Nakamoto – lost 4% to $22,900. BTC is where it was a week ago.
Ethereum, the second most valuable crypto coin – created as a decentralised network for smart contracts on the blockchain – dropped 5% to $1,675. ETH is 3% up over the course of a week.
Binance Coin is a cryptocurrency created by popular crypto exchange Binance to assist its aim in becoming the infrastructure services provider for the entire blockchain ecosystem. Its BNB token lost 2% to $318, leaving it 11% up over seven days.
The XRP token of Ripple, a payment settlement asset exchange and remittance system, acts as a bridge for transfers between other currencies. XRP fell 4% to 36.1 cents, with its price 2% down on seven days ago.
Cardano is an open source network facilitating dApps which considers itself to be an updated version of Ethereum. Its ADA token, designed to allow owners to participate in the operation of the network, shed 4% to 51c and is 1% up in a week.
Solana is a blockchain built to make decentralised finance accessible on a larger scale – and capable of processing 50,000 transactions per second. Its SOL token dropped 7% to $39.51 but is 2% higher than its price a week ago.
Polkadot was founded by the Swiss-based Web3 Foundation as an open-source project to develop a decentralised web. Its DOT token, which aims to securely connect blockchains, fell 6% to $8.64 and is 8% up on its price a week ago.
Meme coin DOGE was created as a satire on the hype surrounding cryptocurrencies but is now a major player in the space. DOGE shed 5% to 6.8c and is 1% up over seven days.
Avalanche is a lightning-quick verifiable platform for institutions, enterprises and governments. Its AVAX token fell 4% to $27.32 and is 16% up in a week.
Polygon aims to securely connect blockchains as a sort of decentralised internet. Its MATIC token fell 5% to 88c, while it is 2% down in a week.
For valuations of the top 100 coins by market cap in US dollars, plus 24-hour price change, see below.